COMM-3016EL Chapter Notes - Chapter 5: Accrual, Deferral, Historical Cost
1 Mar 2018
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Chapte(cid:396) 5 financial position & cash flows. Usefulness of the statements of financial position and cash flows from a business. Investors can use the sfp and related notes to the financial statements to assess companies" financial flexibility and their risk of business failure. One concern of financial statement users is that company insiders might manipulate information to make earnings look better or worse than they are, for strategic reasons. If managers are trying to increase their bonus, they may be tempted to artificially increase earnings, which they could do by reducing the allowance for doubtful accounts, for example. Likewise, managers might try to lower earnings in a year when they have missed their bonuses, so that they can more easily increase earnings and their bonuses the next year. Analyzing the statement of cash flows is often done to assess earnings quality .
